Interpreting Investment-Specific Technology Shocks

Posted: 26 Jul 2010

See all articles by Luca Guerrieri

Luca Guerrieri

Federal Reserve Board - Trade and Financial Studies

Dale W. Henderson

Federal Reserve Board

Jinill Kim

Korea University

Date Written: June 1, 2010

Abstract

Investment-specific technology (IST) shocks are often interpreted as multi-factor productivity (MFP) shocks in a separate investment-producing sector. However, this interpretation is strictly valid only when some stringent conditions are satisfied. Some of these conditions are at odds with the data. Using a two-sector model whose calibration is based on the U.S. Input-Output Tables, we consider the implications of relaxing several of these conditions. In particular, we show how the effects of IST shocks in a one-sector model differ from those of MFP shocks to an investment-producing sector of a two-sector model. Importantly, with a menu of shocks drawn from recent empirical studies, MFP shocks induce a positive short-run correlation between consumption and investment consistent with U.S. data, while IST shocks do not.

Keywords: DSGE Models, Multi-Factor Productivity Shocks, Investment-Specific

JEL Classification: E13, E32

Suggested Citation

Guerrieri, Luca and Henderson, Dale W. and Kim, Jinill, Interpreting Investment-Specific Technology Shocks (June 1, 2010). Available at SSRN: https://ssrn.com/abstract=1648932

Luca Guerrieri (Contact Author)

Federal Reserve Board - Trade and Financial Studies ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States
202-452-2550 (Phone)

Dale W. Henderson

Federal Reserve Board ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States
202-452-2343 (Phone)
202-736-5638 (Fax)

Jinill Kim

Korea University ( email )

1 Anam-dong 5 ka
Seoul, 136-701

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